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CA Intermediate · Advanced Accounting · AS 22 Accounting for Taxes on Income

Narmada Engineering Ltd. reports the following for the year ended 31 March: accounting profit Rs 20,00,000; tax depreciation exceeds book depreciation by Rs 4,00,000; Rs 2,00,000 of expenses are disallowed permanently; unabsorbed business loss brought forward of Rs 5,00,000 from earlier years is set off in the current year's tax computation. In earlier years, a DTA of Rs 1,50,000 on this loss had been recognised with virtual certainty. Tax rate 30%. What is the total tax expense (current tax plus deferred tax) for the year?

Total tax expense is Rs 6,60,000. Current tax on taxable income of Rs 13,00,000 is Rs 3,90,000. Deferred tax adds Rs 1,20,000 for depreciation and Rs 1,50,000 for reversal of the loss DTA used up, since both reduce profit.

  1. ARs 6,00,000
  2. BRs 6,60,000Correct
  3. CRs 5,70,000
  4. DRs 5,40,000

Explanation

Taxable income = 20,00,000 - 4,00,000 + 2,00,000 - 5,00,000 = Rs 13,00,000; current tax = Rs 3,90,000. Deferred tax: DTL on depreciation = 4,00,000 x 30% = 1,20,000 (expense); reversal of DTA on loss = 1,50,000 (expense). Total = 3,90,000 + 1,20,000 + 1,50,000 = Rs 6,60,000. Rs 5,40,000 ignores the DTA reversal.

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